U.S. Markets open in 7 hrs 25 mins
  • S&P Futures

    3,261.25
    -13.75 (-0.42%)
     
  • Dow Futures

    26,944.00
    -111.00 (-0.41%)
     
  • Nasdaq Futures

    10,925.25
    -63.75 (-0.58%)
     
  • Russell 2000 Futures

    1,476.30
    -6.50 (-0.44%)
     
  • Crude Oil

    39.22
    -0.09 (-0.23%)
     
  • Gold

    1,915.60
    +5.00 (+0.26%)
     
  • Silver

    24.58
    +0.20 (+0.81%)
     
  • EUR/USD

    1.1763
    -0.0010 (-0.0823%)
     
  • 10-Yr Bond

    0.6710
    0.0000 (0.00%)
     
  • Vix

    27.78
    +1.95 (+7.55%)
     
  • GBP/USD

    1.2798
    -0.0019 (-0.1485%)
     
  • BTC-USD

    10,485.51
    +47.79 (+0.46%)
     
  • CMC Crypto 200

    222.90
    -12.68 (-5.38%)
     
  • FTSE 100

    5,804.29
    -202.76 (-3.38%)
     
  • Nikkei 225

    23,360.30
    +40.90 (+0.18%)
     

Analyzing Adobe's Unusual Options Activity

Benzinga Insights

On Monday, shares of Adobe (NASDAQ: ADBE) saw unusual options activity. After the option alert, the stock price moved down to $512.7.

  • Sentiment: BEARISH

  • Option Type: SWEEP

  • Trade Type: PUT

  • Expiration Date: 2020-09-18

  • Strike Price: $445.00

  • Volume: 503

  • Open Interest: 433

Three Ways Options Activity Is ‘Unusual’

Exceptionally large volume is one way options activity can be considered unusual. The volume of options activity refers to the number of shares contracts traded for a day. Open interest describes unsettled contracts that have been traded but not closed by a counter-party. In other words, for each contract buyer, there must be a seller. A purchased contract remains open until a seller closes it, and vice versa.

Another gauge of unusual options activity is a contract with an expiration date in the distant future. Additional time until a contract expires generally increases the potential for it to grow its time value and reach its strike price. It is important to consider time value because it represents the difference between the strike price and the value of the underlying asset.

“Out of the money” contracts are unusual because they are purchased with a strike price far from the underlying asset price. “Out of the money” occurs when the underlying price is under the strike price on a call option, or above the strike price on a put option. Buyers and sellers try to take advantage of a large profit margin in these instances because they are expecting the value of the underlying asset to change dramatically in the future.

Understanding Sentiment

Options are “bullish” when a call is purchased at/near ask price or a put is sold at/near bid price. Options are “bearish” when a call is sold at/near bid price or a put is bought at/near ask price.

These observations are made without knowing the investor’s true intent by purchasing these options contracts. The activity is suggestive of these strategies, but an observer cannot be sure if a bettor is playing the contract outright or if the options bettor is hedging a large underlying position in common stock. For the latter case, bullish options activity may be less meaningful than the exposure a large investor has on their short position in common stock.

Using These Options Strategies

Unusual options activity is an advantageous strategy that may greatly reward an investor if they are highly skilled, but for the less experienced trader, it should remain as another tool to make an educated investment decision while taking other observations into account.

For more information to understand options alerts, visit https://pro.benzinga.help/en/articles/1769505-how-do-i-understand-options-alerts

See more from Benzinga

© 2020 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.